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Another poison pill?

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House Republican Leader Jim Durkin last week said he, the other legislative leaders and the governor had a “healthy” discussion about pensions.

“No one wants to talk about it but we have to talk about it,” he said. “The unfunded liabilities in our system continue to grow. We can’t lose sight of it. And I think that we can get there at some point.” […]

When he left that meeting the House’s top Democrat - Speaker Michael Madigan - said Gov. Bruce Rauner has tied his pension ideas to collective bargaining — the very issue at the heart of Illinois’ budget stalemate.

“It gets terribly complicated. Bottom line for understanding is that when the governor talks about changes in the pension laws, he always talks about changes to collective bargaining. That’s important to understand,” Madigan said.

So, is this yet another poison pill?

I asked the governor’s office for comment and was referred back to a couple of posts on my own website.

“You can’t do consideration without changes in collective bargaining,” I was told.

* From July 25th of last year…

[Senate President John Cullerton’s] idea is to present them with a stark choice as their contracts come due for renewal: Workers could agree to a scaling back of the COLA they’ve been promised in retirement or forgo any pay raises while they’re still working.

“The state constitution,” said Cullerton, “does not guarantee pay raises.”

Cullerton predicts most workers nearing retirement will opt to keep their 3 percent COLA. But enough younger and middle-age workers will choose continued pay raises that will achieve more substantial long-term savings. Current retiree benefits wouldn’t be touched, and since 2011, new “Tier 2″ hires already have had their promised benefits reduced.

* And here’s part of AFSCME’s response…

The latest pension-cutting concept outlined by Senate President John Cullerton looks like extortion—both unconstitutional and blatantly unfair

* So, is Madigan the lone hold-out on pension reform?

Maybe not.

* The Cullerton folks say their guy’s proposal is not the same as the governor’s proposal.

There’s an understandable reluctance to talk about details of negotiations. However, Cullerton’s spokesperson told me the big difference between Cullerton’s proposal and Rauner’s is that while Cullerton does support some changes to collective bargaining, “we are not fundamentally undermining the right to collective bargaining.”

* Related…

* On state pension board, it’s a new cast but an old game

posted by Rich Miller
Monday, Dec 14, 15 @ 1:19 pm

Comments

I’m sure Rahm Emanuel will be able to deliver House Dems in a Bill like this so the Triangulation is complete.

To the Post,

I have come to the conclusion that Gov. Rauner will give on every single thing, you name it, Rauner will walk…

… except collective bargaining and prevailing wage.

That’s the ball game.

Even the Raunerite Gonzalez, running in the Democratic primary against Speaker Madigan made it clear that “reforms” are part of his *cough* agenda *cough*… his political platform.

Trades, public sector, the Labor movement…

Rauner wants you destroyed… at all costs

What is comical to me is… “Oh yeah! How do you explain all those labor agreements Rauner supports?”

1) Are they the same as offered to AFSCME?

2) If these “reforms” are passed, how soon before these reforns are enacted to supercede these agreements? Are soon do these reforms slowly bleed trade unions, labor?

It’s not about today, but ending Labor’s tomorrow.

I’m not surprised by this poison pill. Not angry or upset, not even disappointed.

The ball game is; Give Dems everyting and anything so Unions and Labor is destroyed.

Absolutely nothing new in this pill. Zero.

Comment by Oswego Willy Monday, Dec 14, 15 @ 1:31 pm
That’s just step 1, OW. He has three more budgets worth of hostage taking to go.

Comment by CharlieKratos Monday, Dec 14, 15 @ 1:43 pm
OW hits it.

There are an estimated 65000 state employees that haven’t yet settled with the governor. Touting a few thousand, that both have different situations and were offered different things, is disingenuous.

Comment by There is power in a union... Monday, Dec 14, 15 @ 1:44 pm
I keep seeing some variation of this idea floated around, mostly by the same people who want to try to just negate the pension debt. I believe Cullerton truly wants to try to find a legal fix, but I’m not sure there is one with the approach being taken. I think they are chasing a mirage.

Here’s why:

a) Given the State Constitution’s Pension Clause, pensions are an individual right, not a group right. Collective bargaining can’t negate that individual right.

b) The Automatic Annual Increase (AAI) is part of the existing set of benefits for ‘Tier 1′ employees and, to date, the IL SC has been clear about the terms at time of hire plus enhancements granted by the General Assembly being protected by the Pension Clause. Although in some cases it was first obtained via contract negotiations, the AAI was, in fact, granted by the GA through enactment of various changes to the language.

3) The AAI is actually being specifically funded by either 0.5% or 1.0% contribution by the employee. It is a paid for benefit. Try going into court and arguing the employee should not receive something they specifically paid for.

4) While it is valid to change contracts via “consideration”, the change has to be voluntary. Any such offer must include “keep what you have” as an option … and nothing I have heard rumored or previously seen in bill language (Cullerton’s original SB-1 for example) had that option. And as long as you can keep what you have, why would you want to change to a worse deal?

5) Yes, it is theoretically possible to stop giving out raises. And yes, there is at least one court case saying there is no guarantee to raises. However, it is clear that any salary increase would be part of the Final Average Compensation used to calculate the pension and AAI.

5a) So the State could try to stop giving out raises but I suspect that just raises more road blocks than it solves. Does that mean that there will no longer be Step Raises? Does that mean there will no longer be Cost of Living raises under the union contracts? No Longevity raises? Does that mean no one will be allowed to bid on and take a higher salary job title? And even if you did manage to stop all that, how long will an employee stay around with no raises or COLA increases while working?

5b) I hate to give them ideas, but I’m pretty sure they’ve already thought of this one. The only way I see the State to stop giving raises and somewhat negate the projected pension debt is to stop have employees that earn pensions … and that means to stop having employees, period. Outsource everything. The big problem with that, in my experience, is that outsourcing actually costs more than doing the work in house.

There’s going to be some interesting court cases if the State imposes such a change and tries to argue a raise is not a raise.

And I’ve love to use the argument that I didn’t owe taxes on it with the State Department of Revenue and the Internal Revenue Service … because Rauner said it wasn’t a raise, it was just a monetary gift from the State.

Comment by RNUG Monday, Dec 14, 15 @ 1:56 pm
“5b) I hate to give them ideas, but I’m pretty sure they’ve already thought of this one. The only way I see the State to stop giving raises and somewhat negate the projected pension debt is to stop have employees that earn pensions … and that means to stop having employees, period. Outsource everything. The big problem with that, in my experience, is that outsourcing actually costs more than doing the work in house.”

You’re not giving them any ideas. This I believe is their big “get” in the contract. They want no limits on subcontracting. None. What you laid out is why…

Comment by There is power in a union... Monday, Dec 14, 15 @ 2:02 pm
Does the governor think that if he puts in his anti-working family poison pills on every single issue that eventually it will just sneak through? Or is he just so callous he will literally wreck the state in pursuit of his radical anti-worker agenda?

Comment by Precinct Captain Monday, Dec 14, 15 @ 2:04 pm
Taxing retirement income needs to part of the solution. Heck, roth contributions are already being taxed while traditional contributions are never taxed by the State. Seems unfair.

We need the money now so treat all contributions - roth, traditional, pension, and employer matches - as taxable at the time of contribution. No need to worry about retiree flight because withdrawals would still be tax free.

Comment by thechampaignlife Monday, Dec 14, 15 @ 2:06 pm
==as long as you can keep what you have, why would you want to change to a worse deal?==

One thought - people don’t necessarily behave rationally. What about giving a Tier 1 employee an incentive to move to Tier 2 voluntarily. For example, a Tier 1 employee making $50,000 per year could receive a one time cash incentive of 2.5% of annual income per year of service, which assuming 15 would be 50k x 2.5% x 15 years of service would equal $18,500.

Comment by AC Monday, Dec 14, 15 @ 2:12 pm
RNUG- 5b= honeybear mindsplode. That makes so much sense. It’s exactly what they are doing. Outsource anything that can be. Dear God

Comment by Honeybear Monday, Dec 14, 15 @ 2:18 pm
== Heck, roth contributions are already being taxed while traditional contributions are never taxed by the State. Seems unfair. ==

Generally, the State has mirrored Federal policy on tax exemptions on income. At the Federal level, Roth is taxed going in but not coming out; standard IRA is untaxed going in
but taxed going out. Changing it would make the IL-1040 a bit more complicated.

== We need the money now so treat all contributions - roth, traditional, pension, and employer matches - as taxable at the time of contribution. No need to worry about retiree flight because withdrawals would still be tax free. ==

That approach means all the current retirement income in the State, which is one of the growth areas, would remain untaxed. Taxing just contributions would raise less revenue.

Plus it would let retirees like myself off the hook … so I guess I like that part of it.

Comment by RNUG Monday, Dec 14, 15 @ 2:19 pm
Looking at AC’s example where a worker with 15 years might get over $18,000 to switch;

If this worker has $18,000 in credit card debt that he/she can’t pay down then something like this not only gets them out of debt but stops them from owing another $300 or $400 a month in interest. The drop to Tier 2 might not look so bad in that case.

Comment by Anonymous Monday, Dec 14, 15 @ 2:21 pm
These negotiations will go nowhere so long as both sides call the other proposals “poison pills.” Dems will have to give up some union protections, Repubs will have to give in on revenue increases.

Comment by NixonHead Monday, Dec 14, 15 @ 2:23 pm
RNUG’s analysis seems right to me. The state will have to offer something new of value to employees in exchange for them giving up their current 3% compounding COLA. One option would be for the state to essentially buy the COLA from employees with up front cash. Offer say, 5 or 10 grand to anyone willing to accept a reduced AAI. You essentially would be incentivizing employees to make an unsound long term financial choice for a short term gain.

Comment by Rick H Monday, Dec 14, 15 @ 2:24 pm
Thank you RNUG !

Comment by forwhatitsworth Monday, Dec 14, 15 @ 2:25 pm
- RNUG -

You’re the goods, bud.

Love when you go about your business to lay out what the real and the doable could include when that type of analysis is needed most.

Much respect.

Comment by Oswego Willy Monday, Dec 14, 15 @ 2:27 pm
== One thought - people don’t necessarily behave rationally. ==

If they spent 10 minutes with a calculator, they would figure out how bad a deal it was.

But I do agree that people don’t always act rationally.

Example 1 - Back when the 2002 ERI was offered, one person I know who was going to retire anyway didn’t want to spend the money to buy the extra 5 years of service allowed under the deal. I sat him down with a calculator and had him run through the numbers with and without the 5 year addition versus an assumed investment of the amount required for the buyout. The difference was eye-opening. He bought the extra time, and just last month he again thanked me for making him do that exercise.

Example 2 - During the same period, several people too young to start SS thought about taking the “Level Payment” option because they were worried about not being able to live on just their pension. I tried to talk most of them out of it, explaining (skipping most the details) that most people didn’t have the discipline to invest the difference and, that if it was that tight, they couldn’t afford to retire because they wouldn’t have any money to invest. One of them went ahead and took the Level Payment. About 6 months after, they realized they had made a mistake and tired to undo the “irrevocable” decision.

But yeah, I understand that people don’t always act in their own best interests … which is probably what Rauner and company are hoping will happen.

Comment by RNUG Monday, Dec 14, 15 @ 2:31 pm
==Dems will have to give up some union protections==

NixonHead, the pensions are protected by the Illinois Constitution, not unions and union contracts.

And as RNUG mentions: a) Given the State Constitution’s Pension Clause, pensions are an individual right, not a group right. Collective bargaining can’t negate that individual right.

Comment by Anonymous Monday, Dec 14, 15 @ 2:33 pm
“Dems will have to give up some union protections, Repubs will have to give in on revenue increases.”

False choice. We need the latter. We don’t need the former. If you don’t believe me ask Rauner for the giant list of things to cut so we don’t need a tax hike. I’ll be waiting…

Comment by There is power in a union... Monday, Dec 14, 15 @ 2:34 pm
== Offer say, 5 or 10 grand to anyone willing to accept a reduced AAI. ==

Depending on the time to retirement to invest the “incentive”, it would have to be 10 or more times that to come anywhere close to the value being given up.

Comment by RNUG Monday, Dec 14, 15 @ 2:39 pm
As I have advocated on this site many times, the only way forward pension-wise in my opinion is do what the Feds have done for years…separate pension formulas for various groups of employees based on when you were hired…period. In time, savings will be realized, but eliminating the backlog has to be taken care of either separately or through a new amortization schedule folding in the backlog moving forward. So, if we end up with 14 tiers in the next 30 years, so be it, just leave those already promised alone!

Comment by Captain Illini Monday, Dec 14, 15 @ 2:40 pm
Given the State Constitution’s Pension Clause, pensions are an individual right, not a group right. Collective bargaining can’t negate that individual right.

Unions cannot bargain away your civil rights. Blaming unions ignores this reality. That is one of many reasons Rauner has exposed himself as completely out of his league on union issues. This man and his administration really don’t understand basic law.

Comment by VanillaMan Monday, Dec 14, 15 @ 2:44 pm
== separate pension formulas for various groups of employees based on when you were hired ==

We already have that; it’s called ‘Tier 2′. And every analyses to date of ‘Tier 2′ funding versus benefits shows that the benefits will be totally paid for by JUST EMPLOYEE contributions and projected earnings WITH MONEY LEFT OVER to slowly pay down the ‘Tier 1′ debt.

From an employer pension funding perspective, it’s hard to beat FREE! The State doesn’t need more tiers; instead of outsourcing so Rauner’s buddies can make money off the contracts, the State just needs to hire more new ‘Tier 2′ employees.

Comment by RNUG Monday, Dec 14, 15 @ 2:46 pm
RNUG, Thanks again for the clear and concise summation of retirement thoughts. I totally study everything you post because it hits the points quickly and in an easy to understand manner. Thanks again.

Comment by Big Joe Monday, Dec 14, 15 @ 2:51 pm
Illinois Lottery cannot process Visa credit cards for their subscriptions. Just notifying subscribers now. More government bureaucratic foul-ups and lost money for Illinois. Said they are trying to fix the “problem” but it has already been a few weeks.

Comment by LotteryBust Monday, Dec 14, 15 @ 3:11 pm
@RNUG

As it pertains to your 4 and “consideration”-If I understood Madair correctly his argument was that since “raises” are not guaranteed, they then become the “consideration” of value. Not saying I agree but I believe that was the point he made while referencing a New York Federal court decision (not binding in the federal circuit that serves Illinois but can be used for guidance). I think Madair is a rational person and has a good handle on what might be doable. He also added that in the proposal he helped develop that the state would pick up any costs associated with Tier 2 if it did not meet IRS safe harbor. That was news to me, I never heard anyone say that before.

Thoughts?

Comment by JS Mill Monday, Dec 14, 15 @ 3:14 pm
Last week everyone beat up Madigan for telling the simple truth, well known by both sides.

Now we shouldn’t beat up Team Rauner for the same. It’s true. Any further changes impacting pension liabilities will have to come from negotiation. The rest is fantasy.

Comment by walker Monday, Dec 14, 15 @ 3:19 pm
=== Now we shouldn’t beat up Team Rauner for the same. It’s true. Any further changes impacting pension liabilities will have to come from negotiation. ===

I don’t see folks criticizing the idea that something has to be negotiated. They’re rightly criticizing the proposals.

Comment by Norseman Monday, Dec 14, 15 @ 3:27 pm
- JS Mill -

Madiar has clearly done the most research on this and, to date, been proven correct on his conclusions. However, we need to remember that when Eric came up with his consideration theory, he was charged with finding a loophole and consideration was the only crack he could find.

Assuming it is a valid crack (and the one IL SC comment in the SB-1 decision hints there might be a chance), then the question moves to what constitutes valid consideration?

a) We know from Peters (1974) that the employer can legally shorten the time allowed on a job (age cap) even if it would result in a diminished pension.

b) But we have both Bardens (1961) and Felt (1985) saying you can’t adversely change the salary base or the formula for calculating the pension. (Note: both those affected JRS).

So while Madiar may have found a crack, I think it is a long shot if the State tries to involuntarily cap the amount of salary that is pensionable. I’ll agree with Cullerton that there is no Constitutional right to a raise, but it looks to me that, if a raise is given, it must be counted as pensionable.

Comment by RNUG Monday, Dec 14, 15 @ 3:43 pm
== Any further changes impacting pension liabilities will have to come from negotiation. ==

It has to be an individual, one-on-one, agreement.

Comment by RNUG Monday, Dec 14, 15 @ 3:46 pm
RNUG, could health insurance be re-opened as a element of consideration in the context that Rauner is trying to dramatically raise premium costs, which will likely effect the dependents of retirees? For instance, guarantee better deals for those who give up some AAI? Of course, I have no idea on how much money could be saved from such a change. Any thoughts?

Comment by NIUprof Monday, Dec 14, 15 @ 4:01 pm
65,000 unionized state employees hold a state of 13.1 million hostage so they get taken care of.
Tail wagging dog.

Comment by Big Muddy Monday, Dec 14, 15 @ 4:17 pm
== … could health insurance be re-opened as a element of consideration in the context that Rauner is trying to dramatically raise premium costs, which will likely effect the dependents of retirees? ==

- NIUprof - ,

Anything could be offered as “consideration”. I guess that might be possibility. But the State would have to be careful how they go about it.

Situation would vary depending on retiree or active employee.

I could see the under 65 retiree / dependent being caught in a dependent premium squeeze. But I don’t see how they could do that to the 65+ Medicare group since they pretty much dictate the participation in a Medicare Advantage plan and the federal rules for that are pretty cut and dried: give up your original Medicare premium and add a small bit and you end up with a MA plan. And in this group, you would always have the option of the dependent going their own route with either original Medicare and a supplement or a non-State sponsored MA plan.

I still have a problem with the State asking for someone to give up a benefit like the AAI that they have paid for. I’m going to mull that one over some more.

Comment by RNUG Monday, Dec 14, 15 @ 4:26 pm
Man, you guys really just want to have the worst public servants money can buy.

Comment by Anon Monday, Dec 14, 15 @ 4:42 pm
“65,000 unionized state employees hold a state of 13.1 million hostage so they get taken care of.
Tail wagging dog.”

Show me how privatizing all state work out will help the state with better services. As the Maximus debacle shows, it doesn’t work.

Comment by There is power in a union... Monday, Dec 14, 15 @ 4:52 pm
RNUG, your 3:43 comments are excellent. The only thing I would add is that a raise enticement is only of interest if you expect a raise. MCs haven’t had a raise in 9 years. Rauner is not advocating for any raise in the near future.

I may have missed it in your response to the NIU Prof (go Huskies), but the state needs to take Into consideration the Kanerva ruling if they try to use group health as consideration. With Kanerva, they can’t take health away in its entirety. Playing with levels would be dicey. Trashing coverage and major increases in copayments would also be challenged.

Comment by Norseman Monday, Dec 14, 15 @ 4:54 pm
==- NIUprof - Monday, Dec 14, 15 @ 4:01 pm: ==
It is not about saving the state money. It is about making money for private investor companies.

Comment by Mama Monday, Dec 14, 15 @ 4:55 pm
I am not necessarily advocating for what I write below, just opening it up for discussion.

The big legal question in my opinion is can the state treat Tier 1 and Tier 2 employees differently? In other words, can the state going forward abolish cost of living increases, step increases, and/or promotional increases, etc. for Tier 1 employees but continue to offer these to Tier 2 employees? I get that if the state did this then most Tier 1 folks would quit and find other jobs, but those who did so would then also quit accruing pensions and could be replaced by less expensive Tier 2’s. The state would almost certainly save a lot of money over time.

I can see such a tactic perhaps, indirectly, violating rules against age discrimination, because Tier 1 employees will on average be older than Tier 2’s. I also see problems with civil service regulations if people with similar education, experience and job performance have different salaries solely due to pension tier status; however, civil service rules are probably changeable and not constitutionally protected.

Let me note also that the Federal Government has effectively done something similar. Congress has decreed that new employees have to pay 4.4% of their salaries into FERS, vs. 0.8% for those hired prior to 2012, and all Federal employees have received very stingy cost of living increases during the past 7 years. To compensate, some agencies now have rotational programs for new hires that grant accelerated promotions and raises. So the effect is very similar to treating tier 1 vs. tier 2 in Illinois differently: the folks with the worse pension status get better raises as compensation.

Comment by Andy S. Monday, Dec 14, 15 @ 5:12 pm
-Andy S.-,

State employees may only have an age discrimination case under state law; they may not have a case under Federal law. It’s little known but I’ve mentioned it before; a lot of federal employment law does not apply when the State is the employer so State employees actually have less protection than employees of private sector companies or municipal employees. And somehow I don’t have any faith the Illinois Department on Aging will come down with a ruling against their boss.

Comment by RNUG Monday, Dec 14, 15 @ 6:18 pm
-Norseman-,

I started to go into the whole Kanerva question, then edited it out before posting because it can get quite convoluted distingishing between 20 yr retirees, lesser service time retirees, under and over age 65, and dependent combinations. My posts can be long winded enough and I’ve been consciously trying to write more concisely.

Comment by RNUG Monday, Dec 14, 15 @ 6:24 pm
Raises may not be constitutional protected, but the formula based on your salery in regards to pensions is.

Comment by Facts are stubborn things Monday, Dec 14, 15 @ 6:26 pm
One of the biggest problems I see with anyone being willing to make any deals and give up things for considerations is who is to say the next Governor won’t come in and cancel them all out. A lot of the benefits state employees have were deals where they gave up something in exchange for something. And now those deals they made no longer exist apparently.

Comment by HangingOn Monday, Dec 14, 15 @ 6:53 pm
== One of the biggest problems I see with anyone being willing to make any deals and give up things for considerations is who is to say the next Governor won’t come in and cancel them all out. ==

Bingo. State employees once gave up a 4% raise in exchange for a pension pickup that the next Governor negated. The union people did manage to eventually gain back that 4% salary increase but the Merit Comp people never did. And since I was MC, I was just …. out of luck. That means my pension ended up based on a 4% lower Final Average Compensation (actually more once you factor in lost compounding of the salary).

Comment by RNUG Monday, Dec 14, 15 @ 7:27 pm
I would say that this particular post is why most Illinoisians don’t want their income taxes raised back to 5%.

Comment by Blue dog dem Monday, Dec 14, 15 @ 8:30 pm
- Blue dog dem -

What does that mean?

Your ambiguity at times seems to be confusing, on purpose.

Comment by Oswego Willy Monday, Dec 14, 15 @ 8:54 pm
==- Blue dog dem - Monday, Dec 14, 15 @ 8:30 pm:
I would say that this particular post is why most Illinoisians don’t want their income taxes raised back to 5%. ==

BDD, a tax increase is not solely related to pensions. Pass governors borrowed from the state pension funds. Those pension funds have to be paid back in full no matter what they do about future pensions.

Comment by Mama Monday, Dec 14, 15 @ 9:48 pm
==Pass governors borrowed from the state pension funds==

Great point, Mama. And may I add that *all* residents of Illinois benefited from that “borrowing”. Amazing how many people who act like it’s all the pensioners fault seem to forget that when they complain about their taxes.

A bank wouldn’t be nearly as patient as the workers have been.

Comment by HangingOn Monday, Dec 14, 15 @ 10:12 pm
Does anyone know the current number of tier 1 vs tier 2 state employees?

Comment by justdoingtime Tuesday, Dec 15, 15 @ 1:12 am
The SERS annual report doesn’t seem to break the membership down between Tier 1 and Tier 2, or at least I don’t see it. I could probably back into the number by taking all the reports since 2011 and the additions / subtractions, but I’m not going to take the time to do so right now.

Comment by RNUG Tuesday, Dec 15, 15 @ 5:40 am
RNUG:
5a)
The other issue with this is the TRS employees. They make up a huge part of the retirement system and pay freeze would have to be done at the local level.

I think for that to work, the state would have to threaten to withhold any money to the districts that give out raises, or penalize the districts with fines who do not comply.

Comment by Person 8 Tuesday, Dec 15, 15 @ 7:58 am
-Person 8-,

Since the proposal is part of the AFSCME contract, I just addressed the SERS and SURS employees. I expect the TRS pension costs will be addressed by dumping the normal costs on the local school districts and even some of the unfunded debt. That could even be part of a plan to force insolvency and eventual privatization.

Comment by RNUG Tuesday, Dec 15, 15 @ 9:08 am